The Federal Reserve

The Federal Reserve
-What is the mission, or goals, of the Fed?
The Fed concerns itself with the enhancement of “the stability, integrity, and efficiency of the nation’s monetary, financial, and payment systems so as to promote optimal macroeconomic performance” (Federal Reserve, 2018).
-Explain the structure of the Fed and the hierarchy of governance.
The Federal Reserve entities charged with decision making regarding the nation’s economic stability are; the Federal Reserve Board of Governors, The Federal Reserve Banks, and the Federal Open Market Committee (Federal Reserve, 2018). The Federal Reserve System is overseen by Congress.
-Is the Fed a public or private entity? Who owns the Fed?
The fed is a public entity. The Fed is an independent institution, and is not owned by any specific person/entity. It is overseen by Congress.
-If issuing Federal Reserve Notes stimulates the economy, why not print money indefinitely?
Printing money indefinitely would not stimulate the economy. Instead it would cause inflation, which is essentially the increase in the prices of goods as well as services.
-Under what conditions would the Fed purchase securities like U.S. treasuries?
According to the Federal Reserve (2018), “the Federal Reserve purchases Treasury securities held by the public through a competitive bidding process.” In what is referred to as open market operations, the Fed’s purchase of U.S. treasuries has the effect of injecting money into the economy. Therefore, the Fed would purchase U.S. treasuries when there is need to enhance money supply, i.e. when there is need to stimulate public spending and spur economic activity.
-How does the Fed regulate and supervise banks and why is this important?
The Fed regulates and supervises banks through its Division of Supervision and Regulation (Federal Reserve, 2018). Towards this end, it is responsible for the development of guidelines and policy statements meant to oversee the nation’s financial and banking structure. The said supervision is critical as it not only promotes, but also enhances the entire financial system’s safety and stability (Federal Reserve, 2018). Further, the Feds regulatory and supervisory efforts come in handy in the further enhancement of the stability as well as growth of the nation’s economy.
-What services does the Fed provide to our country’s financial system and how did it come to be known as the “Bankers Bank”?
Essentially, the Fed is key towards the promotion of the nation’s financial system stability and safety – a role it largely accomplishes through the minimization and containment of “systemic risk through active monitoring and engagement in the U.S. and abroad” (Federal Reserve, 2018).
-Visit the debt clock website at http://www.usdebtclock.org/ (Links to an external site.) Links to an external site. and locate the category M2. This is the present money supply in the hands of the public. Using a timer determine how much the money changes in 1 minute. Is it increasing or decreasing? What do you think this means for the overall economy?
In the minutes sampled using a timer, there was an increase in the money supply in the hands of the public. This means that the public’s purchasing power is being enhanced. This is likely to be followed by an increase in the price of goods and services, as sellers adjust their prices to reflect the enhanced purchasing power. In the long-term, this would increase not only the cost of living, but also the cost of conducting business – which all have a negative impact on the economy.
References
Federal Reserve (2018). About the Fed. Retrieved from https://www.federalreserve.gov/aboutthefed.htm